Stick, Twist of Fold? Will Xmas sales break the industry’s digital poker face?

On November 24, 2011
Spotify-chip

‘Tis the season for heartwarming adverts, packed high streets and attempts to break the usual online retail figures. Although the season is based around religious holiday, the notorious commercial factors surrounding Christmas will be keeping the economists busy, thumbing through sales reports and picking up the trends. But 2011 is  a year with much focus on the digital streaming services and new online music stores through Amazon and Google; what will the season bring for the music industry?

There were three articles in Music Week which got my attention this week and all service this discussion. The first very brief announcement covered Spotify’s growing body of paid subscribers, which has reached 2.5 million and still growing. Due to a US launch and its integration with Facebook, it seems things are looking good for Spotify to cut a profit at the end of the financial year. Although the company may rejoice, the success will only cause the many quibbling artists to continue harking about royalties and the devaluation of their product. If Spotify has so many subscribers, why are so many artists still not seeing returns from these services? Craig Hamilton was good enough to point out to me last week, “Some are on points deals (similar to physical deals) and are only getting 10% of digital revenue. Bear in mind that a label could be giving 20% to an aggregator, so artists could be getting 8% (or the label could even be passing on the aggregation costs to the artist!).

The other article discussed ST Holdings removing their catalogue from streaming services after seeing a poor return, including a dip in online sales (which may or may not be blamed on the growth of online streaming). They have now announced that they are working with streaming companies to determine what, if any, better deals could be made available to musicians whilst keeping the consumer happy. Another debate formed around “streams vs sales”; Beggars Group Chairman Martin Mills came out defending Spotify, equating 200 plays to a sale – although admitting that you need to be as popular as Adele to see those numbers. I do worry that there is a sort of nepotism at work between the major labels and the streaming companies, as it seems to be the smaller artists complaining and being squeezed on the deals. The fallout means 200 indie labels are off these services, making Spotify retort to the cue card: If you are getting something from pirates and those who are not your traditional fanbase, it’s better than nothing.

The third announcement addressed Amazon’s Black Friday deals on their music store. As with Amazon’s Cloud Drive and their commitment to pushing the buttons of many of the record labels, they are giving away free music to drive more customers to their service. The likes of Laura Marling, Katy Perry and The Rolling Stones will become the unwitting loss leaders; traditionally a supermarket tactic to sell goods at cost or below to stimulate greater sales in other goods. Going back to what I discussed last week, could digital music be reduced to free media to drive consumption of more physical objects, such as live concerts or merchandising? 

Giftcard_deck

The battle of the gift cards…

So as Crimbo quickly approaches and we complete endless shopping lists, there will of course be the awkward gift card moment – when just nothing else will do! iTunes has always done pretty well in this market, with many choosing to buy a voucher for their iPod-obsessed teen or app-crazy spouse. Spotify will now have their green pieces of plastic gold on retailers’ shelves soon, and Amazon’s already strong online presence will have a new outlet to push. Even Facebook are getting in on the act in the US. X-Factor will make its traditional (yet not always successful) singles chart bid, and the Christmas pop compilations have already started flooding TV advertising and retail shelf space alike, almost as premature as eating a mince pie in November. 

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